Consumer advocates demand immediate regulation of Buy Now, Pay Later (BNPL) schemes amid rising debt concerns

Citizens Advice, MoneySavingExpert.com (MSE), and Which? have once again joined forces to press the UK Government for immediate action to regulate Buy Now, Pay Later (BNPL) schemes.

The call comes amid concerns that new laws, initially expected to be in place by now, are being indefinitely delayed, potentially leaving consumers vulnerable to unsustainable borrowing and lacking essential safeguards.

BNPL, a rapidly growing credit option, allows consumers to defer payments for purchases, often without initial charges.

However, this convenience comes with risks, as highlighted by recent findings.

Citizens Advice has discovered a startling 37% increase in BNPL usage in the UK over the past year, with a significant proportion of users, particularly those on Universal Credit, falling behind on payments.

The delay in implementing regulations is raising alarms.

Martin Lewis, the founder of MoneySavingExpert.com, expressed his concerns, noting the potential for a ‘disastrous’ outcome if the government fails to act swiftly.

The absence of regulation, especially amidst a cost-of-living crisis, could lead to more consumers falling into financial hardship.

The trio of consumer advocacy groups is not alone in their concern.

A coalition of supporters has backed their call, emphasising the urgency of the situation in a joint letter to the Chancellor in July, which remains unanswered.

New research by the Financial Conduct Authority (FCA) found that frequent users of BNPL are more likely to be in financial difficulty. Consumers who have used BNPL more than 10 times were:

Over twice as likely as those who have not used BNPL to also have a high-cost credit product (48% vs. 22%). Almost twice as likely to have increased the amount of debt on credit products over the last year (51% vs. 27%). #

Over four times as likely to have missed a payment of a bill or credit commitment in three of the last six months (27% vs. 6%).

The original government plans for BNPL regulation included crucial consumer protections.

These encompassed clear advertising standards, powerful Section 75 purchase protections, the right to complain to the Financial Ombudsman Service, and greater oversight from the FCA, including stricter affordability checks.

However, these measures are now in jeopardy as the government reportedly considers postponing BNPL regulation in favor of broader reforms to the Consumer Credit Act 1974 – a process that could take years.

Dame Clare Moriarty, chief executive of Citizens Advice, emphasised the dire need for regulation against the backdrop of the cost-of-living crisis.

She said: “The cost-of-living crisis continues to have a vice-like grip on people’s budgets, with many being squeezed beyond breaking point.

“Under such pressure, it’s hardly surprising more and more consumers are turning to quick, all too often unaffordable credit options like Buy Now Pay Later (BNPL). In fact, there’s been a 37% jump in its use since 2021, and we only expect this to increase.

“While BNPL can be a good option for some, our message is clear: unaffordable credit is never the answer. The Government must act on its pledge to bring the BNPL market into line.”

Rocio Concha, Which? director of policy and advocacy, also highlighted the convenience of BNPL but warned of the risks due to a lack of consumer awareness about accruing debts.

She said: “Buy now, pay later can be a convenient way to pay for millions of consumers. However, a lack of information about the risks attached to using this payment method can mean some users are unaware that they are taking on debt.

“It’s now been two and a half years since the Government promised to urgently regulate BNPL due to the harm it was causing consumers. With more people turning to BNPL to pay for essentials, that harm has increased.

“Consumers using this payment method need proper protection – something even BNPL providers agree with. The Government must regulate BNPL immediately.”

Martin Lewis, founder of MoneySavingExpert.com, said: “The Government hasn’t said it’s doing a u-turn, but it’s hard not to hear the screech of the handbrakes and the yank of the steering wheel. I desperately hope the Government won’t be yankers though, this regulation is needed, and needed soon.

“BNPL, used right, can be a decent way to spread the cost of planned purchases. Yet too often people sign up without realising it is a DEBT, what happens if they can’t pay, or take it on when it’s unaffordable.

“Regulation was so close we could taste it – the Ts just needed crossing, and the Is dotted. Yet now we’re facing another Christmas, amidst a cost of living crisis, when people under financial pressure are tempted to borrow, and to spend, by this ubiquitous form of debt-payment.

“The industry says the credit laws are imperfect. They’re right. They’re imperfect for all other debts too – but they’re far better than nothing. And BNPL is a debt – it needs controls and regulation. Crucially, that’d ensure it’s promoted correctly, and would give people a legal right to go to the Ombudsman when it goes wrong.

“I’d welcome better rules, but they take time, so let’s get the current regulations in place, then all work together to make them better.”